Publications / Taxation
By Lyndon Garbutt, Senior Associate
Since the introduction of specific contractor and employment agent provisions in 2008, payroll tax has become the largest source of State revenue in Queensland.
In the 2012 financial year, Queensland Treasury reported $4.07 billion in payroll tax revenue, which formed one third of all revenue collected. The State Government contributes this growth in revenue to ‘strong employment and wages growth, especially in mining and construction’.
Contractor and employment agent provisions
These industries however are significantly impacted by the contractor provisions, which were introduced in 2008.
We are also aware that the Office of State Revenue (OSR) is interpreting and enforcing the employment agent provisions in respect of contractors differently to how many businesses would regard the provisions as applying to them – and about which there is no current clear public guidance.
The employment agent provisions require payroll tax to be paid on all payments to workers in instances where the employment agent pays a worker to provide services to clients in return for a fee. In the mining industry, many contractors are paid by reference to hourly rates.
In at least some instances, the OSR have taken the view that – where contractors to the mining companies in turn engage subcontractors to fulfil contractual obligations to the mining companies – the employment agent provisions apply.
This is notwithstanding the contractor may already be remitting payroll tax and regarding itself as being subject to payroll tax under the specific contractor provisions.
Treatment under the employment agent provisions means that all payments to subcontractors are subject to payroll tax, without the benefit of exemptions under the contractor provisions – so that increased payroll tax (and penalties and interest) can apply.
For example, under the contractor provisions, if a subcontractor is engaged for less than 90 days in a year, payments to them are excluded from payroll tax liability. That exemption does not apply under the employment agent provisions.
Increased audit activity
On 15 November 2012 the Queensland Treasurer, Tim Nicholls, announced that the Government expected to recover an additional $34 million in 2013 from ‘people who evade, mislead and misinterpret’ in a bid to avoid paying their tax bills. With increased resources allocated to identify payroll tax shortfalls, the Treasurer has announced that ‘those who try to do the right thing have nothing to fear’.
However, without published guidance on the OSR’s interpretation of how the employment agent provisions apply to taxpayers, it is one area where there is the risk Queensland businesses could be inadvertently exposed to significant assessments for payroll tax and associated penalties.
With the announcement of increased audit activity, now is an opportune time to consider whether arrangements with contractors are subject to payroll tax, including under the employment agent provisions. Taxpayers should consider their positions and determine if there are any potential shortfalls.
If potential shortfalls are identified, then taxpayers should seek professional assistance to voluntarily disclose their shortfalls to the OSR, to ensure any applicable penalties are imposed at a concessional rate.
Focus covers legal and technical issues in a general way. It is not designed to express opinions on specific cases. Focus is intended for information purposes only and should not be regarded as legal advice. Further advice should be obtained before taking action on any issue dealt with in this publication.